Record-low mortgage rates, government stimulus payments, a lack of properties for sale, and a pandemic-induced demand for more space for working from home drove strong real estate price hikes in 2020 in markets across the nation and even around the world.
In Vermont, the real estate market got an additional spark in 2020 from Vermonters who decided to return home and from city dwellers eager to escape COVID-19 outbreaks and buy in a state with lower per-capita virus case counts.
Statewide, according to the Vermont Association of Realtors, the average sale price for a home of any type — primary or vacation home, condo or house — rose 14.9 percent to $357,078 in 2020. Increases were even larger in some resort areas.
Montpelier’s 2020 price increase for comparable properties — up 9.5 percent to $316,507 — was a bit less than the state average, but still strong. Across Washington County, the 2020 price increase of 15.3 percent, to $309,142, exceeded the state average increase, helped by rising prices in towns such as Warren, up 20.9 percent to $356,370.
This year, the local housing frenzy is continuing, with buyers competing aggressively for properties as they come on the market, according to veteran real estate broker Tim Heney of Heney Realtors.
“I’m in three multi-bid situations myself right now, and others in my office are experiencing the same thing,” he said. “We can only make one buyer happy, so it can be very frustrating for buyers who do everything they can, including bidding over the listing price, and then don’t get the house they want.” There have even been reports of multiple bids on properties in private sales that never get listed.
The inventory of houses and condos for sale is especially low in Montpelier, but inventory is now a problem in most of the country. According to the National Association of Realtors, the number of houses for sale in February was down 29.5 percent from a year earlier, reaching a level so low that there were more real estate agents in the country than there were houses to sell.
The average sale price for a house in Montpelier in 2020 (not including condos) was $318,595, up 10.11 percent from a year earlier and more than double the average house price in Barre City, according to data from both the Multiple Listing Service and private sales compiled by Heney’s office.
However, the Montpelier real estate type that saw the biggest price increase in 2020 was condominiums, up a whopping 29.6 percent to $234,834, creating the possibility that condos could see a bigger property tax hike after the upcoming city reappraisal than some other properties.
“Before last year, condos were very affordable, other than on Murray Hill, so the lower-priced condos went up more than other properties due to the strong demand for affordable housing,” Heney said. “It was a very good year for condominiums sales in the Capital City.” Montpelier had 30 condo sales in 2020, up from 25 in 2019.
Condos are popular with older residents who want to downsize, but now are appealing more to first-time buyers too, according to Steve Twombly, head of the Montpelier Assessor’s Office. “I know a younger professional couple in their 30s who gave up on finding a house because they could get a nice condo for the same price as a run-down house,” he said,
Twombly, who will be overseeing a reappraisal by a private firm of all city properties that will begin later this year, confirmed that properties that rise in value faster than average compared with the 2010 reappraisal — potentially including condos and other hot properties such as older Montpelier homes within walking distance of downtown — will see higher tax bills.
In past reappraisals, there has also been a shift of property tax burden from commercial properties to residential properties, since residential prices have risen at a faster pace in recent decades, according to both Heney and Twombly, and that could happen again in the next reappraisal.
Although commercial sales were strong last year, Twombly noted that the next reappraisal will be based on values on April 1, 2023, and since commercial properties are assessed based on their income, commercial assessments in Montpelier could be depressed by the increase in empty storefronts and decreased demand for office space as a result of the pandemic.
Large open land parcels are one type of Montpelier property that could see significant valuation increases in 2023, Twombly said. He said that a half-interest in the 100-acre Sabin’s Pasture parcel recently changed hands for $765,000, suggesting a possible value of twice that. The property is currently assessed at $390,700.
Twombly cautioned that while property valuations will likely rise significantly for most property owners, that does not mean property taxes will go up for all. “If the average value goes up 25 percent, the tax rate will drop by a comparable amount,” he said. “Most people will not see a big effect on their tax bills, but there will be winners and losers.”
The strong 2020 house price increase of 10.11 percent in Montpelier was only half the 21.9 percent increase in the U-32 towns of Berlin, Calais, East Montpelier, Middlesex, and Worcester, according to Heney’s data. The average U-32 residential price reached $330,471, the first time those towns’ average house price has exceeded Montpelier’s since 2016.
Some U-32 properties come with extensive acreage, increasing the value of those homes, but Heney also said U-32 did not have as robust a year in 2019 as Montpelier, so “it is catching up on some level.” The number of house sales in U-32 towns rose 31.68 percent to 133, far outpacing Montpelier’s sales increase of 4.82 percent to 87, but Montpelier’s market was hampered by a severe lack of inventory. That deficit has now spread to most towns in the area.
According to Heney’s data, prices showed greater stability in more affordable communities. In Barre City, sales rose 24.51 percent to 127, but the average price rose only 4.71 percent to $148,694, while in Northfield sales rose 11.43 percent to 78 and the average price fell 2.7 percent to $205,420. Barre Town sales rose 23.08 percent to 144, and the average price there rose 7.39 percent to $238,337.
As some buyers have been forced to buy farther from city centers, rural towns have seen prices jump. Twombly, who lives in Roxbury, said “the market there was pretty slow and not going anywhere until last year, but with demand increasing, prices shot up.”
Montpelier stands out when it comes to multi-family home sales in 2020. Seventeen such properties sold for an average price of $367,053. The local city or town with the next highest average price was Barre City, where 42 multi-family homes sold for an average price of $176,495. The high prices paid by investors in Montpelier likely reflect the fact they expect to be able to charge higher rents than in other towns.
“Multi-family properties are hot compared to the 2010 reappraisal valuations,” Twombly said. “Then an apartment unit in an older building was $40,000 to $50,000. Now an average unit in Montpelier is worth about $100,000, and we even have some units that are worth close to $200,000.”
Adding pressure to the housing market is the skyrocketing cost of construction, making building new houses, condos, or apartments very expensive. Lumber prices are now double the usual amount and copper has risen 33 percent in price since the fall, according to the Wall Street Journal. The rising costs deter builders from building spec houses for fear they will not make any money, Twombly suggested.
With the imbalance of buyers and sellers, the time a property sits on the market is getting shorter. In 2020, the average Montpelier house was on the market for 57 days, down from 74 in 2019 and 83 the year before, and was the shortest “days on market” metric in the area. Montpelier condos were only on the market for 38 days in 2020, on average.
Heney said the flow of new listings coming on the market has improved in 2021, but despite that and despite an uptick in mortgage rates, properties still go under contract quickly, hampering millennials trying to buy their first home.
“Younger buyers are now a real force in the market,” Heney said. “Many are solid buyers, but there is no inventory, making for a frustrating experience.” If buyers persist, however, they should eventually find a home, according to Heney.
For young people without the assets or income to compete in the current market, the prospect of ever buying a home may seem to be slipping away, also creating frustration. But because the real estate market goes in cycles, houses and condos could someday be more affordable, meaning saving money for a future down payment is still prudent.
“No one knows if this boom will continue or crash,” Twombly said. “If I did know, I would be a rich man. But I do believe the market will need to flatten out at some point.”